Nigerian investors in U.K offshore properties at risk of 40% death tax.
This means they will have to pay 40 percent of the value of the UK Property(s) upon their death in order for their next of kin or relative to claim ownership of the property, considering they fall in the category of non-UK domiciles, as compiled from Globaley, a financial planning and wealth management firm.
According to the Dubai-based firm, the rule became effective from 6th April 2017. The new death tax is however applicable to property(s) purchased either before or after the date.
Meanwhile, a person acquires a domicile of origin at birth; this is usually the same as the domicile of such a person’s father at that time, that is, the country that the father considered to be his real or permanent home at the date of the person’s birth. As a result, a person’s domicile may not be the country where he or she was born.
“These new rules mean that any foreign national owning UK Property, regardless of any offshore structure, is liable for 40 percent tax on death. More importantly, this tax must be paid to the British tax authorities (Her Majesty’s Revenue & Customs – HMRC) before the UK Property can be passed to the family,” Tim Searle, Chairman of Globaleye told BusinessDay in a mail response.
Prior to the existence of this tax, offshore corporate structuring was an effective way to pass on the UK Property in the event of death and it limited exposure to taxes and ensured a swift transfer to the family. These offshore structure(s) would also protect the UK Property from the rest of a deceased business interests and allow them to be passed as intended and not through forced heirship, as in the case for some countries.
It was common practice, until recently, for non-UK domiciled individuals – whether UK resident or non-resident – to acquire UK property through offshore companies, even where the property are for personal occupation rather than investment or trading purposes. Offshore structures provided confidentiality and shelter from UK death or inheritance tax (IHT), while stamp duty land tax (SDLT) did not apply to the sale of shares in a company.
On the possible reason for the new death tax, experts cited after the global recession and the advert of Brexit.
“The UK government sought to increase the tax take from UK Property held through offshore structures by introducing a raft of anti-avoidance measures aimed at UK property that was held indirectly. This barrage of anti-avoidance rules has severely limited tax planning options for non-UK domiciled individuals, whether UK resident or non-resident, in respect of UK Property,” an expert said in a statement.
Survey by BusinessDay revealed that a lot of Nigerians have some sort of investment in one UK property or other and will no doubt be affected by this new tax.
On the part of the UK that foreigners invest the most, a survey by Land Registry Overseas Company Ownership showed that most common jurisdictions for foreign Special Purpose Vehicles (SPV) ownership of UK property are; British Virgin Islands (BVI), Jersey and Guernsey. Of which 1 in 4 UK properties owned by an offshore structure are registered in BVI. This jurisdiction has traditionally been the most popular due to ease of establishment and moderate costs. Most legal advisors and fiduciary agents prefer the BVI for this reason.
Also, the value and location of UK properties owned by such structures include; London, South East and West Midlands. Although London is the clear favourite for the UK property and has been for many years.
It continues to grab headlines with many high-profile purchases from overseas investors and is destined to continue. The concentration of property in Central London owned by offshore structures is more than other investment in any other part of the UK.
On the reasons why London is the most favoured location for investment by foreign investors like Nigerians, BusinessDay discovered the following;
First, London is boosted by a billionaire boom, as there are over 72 billionaires worth a grand total of £110bn, who have all made London their home. According to estate agency, Wetherell, the total wealth combined could build 1.6million social homes in the UK, pretty much ending the housing crisis overnight.
Another reason is the fact that it is home to the second most expensive offices in the world. As such London is one of the best cities in the world to work in, whether it is in the city’s financial institutions or for a trendy East End design company. Its office space is some of the most expensive in the world at N86,712 ($240) per square foot, Forbes reports. That is nearly twice as expensive as the 5th most expensive place, Shanghai Zendai, at N49,136. ($136).
The third reason being that in the growing private rented sector, four in 10 renters do not expect to ever buy a house. Of those who do, 44 percent expect to be waiting more than five years to be able to afford it. Also, for those renting from councils and housing associations, the figure is almost eight in 10 and so it is obviously beneficial for investors to explore the opportunity.
Some of the reasons while Nigerians engage in overseas offshore investment are because of portfolio diversification, to safeguard their net worth, to enjoy the benefit of decent return on their investments and to have opportunities for reinvention, as compiled from experts in the industry.
“Having all your money in the Nigerian market, means you are in the mercy of a single economy. When you have all your investment in Nigeria, the return on your investment is dependent on the value of the Naira at any point in time. Should you invest part of your earnings in British pounds, Dollars or other majors you will benefit from the safe haven,” an expert who preferred to be quoted anonymously said.
One of the common reasons explained by consultants is the fact that offshore investments help these investors to manage tax payment, as offshore property investment could mean tax-efficient investment, an opportunity for them to store and grow their wealth privately.
Another reason cited was the fact that these Nigerian investors have access to stable income, when they invest through overseas offshore structures.
As investments in various schemes abroad or other form of profitable property investments will generate an income that is independent of Nigerian economy.
The last but very important reason is because of the fact that they will have advantage of international asset protection.
This means it is difficult for the Nigerian government or individual to have knowledge or easily be able to get to those kinds of asset overseas.
An investor who did not want to be quoted said this reason is normally considered vital by Nigeria government office holders, as they do not want the citizens or the government to think they acquired their properties through stolen money.
“Governments or individuals could sue you and gain control of your bank account, should you build or buy a property with money obtained through fraudulent means. However this will be much more difficult to make a claim on your luxury home in the UK or your condominium on the beach in Havana,” the investor said
